Dr. Mark Cassidy:

In the event of a no-deal Brexit and the adverse implications I mentioned, which the Department of Finance have also spelled out, it is clear with respect to the public finances in the past that the appropriate policy response would be somewhat different, including our own policy advice in that regard. In the more likely scenario whereby a no-deal Brexit is avoided, for the reasons I mentioned, we would like to see larger budget surpluses than are currently envisaged. In the event that there is a disruptive no-deal Brexit, despite the fact that public sector debt is still high, the state of the public finances allows in that situation for the running of a countercyclical fiscal deficit through the operation of what we call the automatic stabilisers on tax revenues and transfer payments. What we mean by that is that the public finance situation automatically and without the need for a budget alters in the case of an economic shock. Owing to lower incomes, people would pay less tax. Government spending on unemployment benefits and other transfers would increase and the increase in spending on benefits and the lower tax collection would keep more money in the economy, help to limit the fall in aggregate demand and cushion the impact of the shock. These are what we call automatic stabilisers. Automatically, there is some relief for the economy without the need for a budget, albeit that the deficit worsens, although that is appropriate in such circumstances. The state of the public finances allows for that.

Without getting into whether a supplementary budget would be required - I am certainly not saying one would be required - beyond those automatic stabilisers, the nature of a hard Brexit and what it would involve in terms of the impact on the economy and possible changes to the structure would allow for some one-off measures. These might be used, for example, to support Brexit trade routes or perhaps targeted measures at those parts of the economy that would be particularly affected by Brexit. In addition to automatic stabilisers, there would be scope for some one-off measures to alleviate the effects and to help the adjustment of the economy towards a new post-Brexit situation. The nature of those would be a matter for the Government. The critical factor I would emphasise is that they would need to be explicitly temporary measures. We need to avoid permanent spending commitments that we may not be able to finance over the longer term, particularly if there was to be a shock to corporation tax revenues or another shock to the economy.